Figure 13-1 shows the Stackelberg model of a duopoly.Both firms face constant marginal costs equal to OJ and the market demand curve is AD.The Stackelberg firm produces an output of OF and OF is equal to FL.
-Refer to Figure 13-1.The Stackelberg firm's residual demand curve is given by:
A)AC
B)BCD
C)BE
D)JCD

Question

Figure 13-1 shows the Stackelberg model of a duopoly.Both firms face constant marginal costs equal to OJ and the market demand curve is AD.The Stackelberg firm produces an output of OF and OF is equal to FL. 
-Refer to Figure 13-1.The Stackelberg firm's residual demand curve is given by:
A)AC 
B)BCD 
C)BE 
D)JCD

Quizplus · Accepted Answer

The residual demand curve of the Stackelberg firm is the portion of the market demand curve that remains after the follower's output is subtracted. In this case, the follower produces an output of FL, which corresponds to point C on the demand curve. Therefore, the residual demand curve for the Stackelberg firm is BCD. To maximize profits, the Stackelberg firm will produce where its marginal cost intersects with the residual demand curve, which is at point F.

Figure 13-1 Shows the Stackelberg Model of a Duopoly